<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended April 3, 1999
Commission file Number 000-20729
PRINTWARE, INC.
(Exact name of registrant as specified in its charter.)
Minnesota 41-1522267
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1270 Eagan Industrial Road, St. Paul, MN 55121
(Address of principal executive offices) (Zip Code)
(651) 456-1400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant(1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
Common Stock, no Par Value--4,842,161 shares as of
April 29, 1999.
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1.--FINANCIAL STATEMENTS
<TABLE>
PRINTWARE, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
QUARTER ENDED APRIL 3, 1999 AND APRIL 4, 1998
DOLLARS IN THOUSANDS EXCEPT PER SHARE
(UNAUDITED)
<CAPTION>
Quarter ended
April 3 April 4
_______ _______
1999 1998
_______ _______
<S> <C> <C>
REVENUES FROM NONAFFILIATES $ 888 $ 974
REVENUES FROM AFFILIATES 32 701
______ ______
TOTAL REVENUES 920 1,675
COST OF REVENUES 584 925
______ ______
GROSS MARGIN 336 750
PERIOD COSTS:
Research and development 190 179
Selling, general and administrative 437 405
______ ______
Total 627 584
______ ______
INCOME(LOSS) FROM OPERATIONS (291) 166
OTHER INCOME (EXPENSE):
Interest expense -- --
Interest and other income 194 200
______ ______
INCOME(LOSS) BEFORE INCOME TAXES (97) 366
INCOME TAXES -- --
______ ______
NET INCOME(LOSS) $ (97) $ 366
====== ======
NET INCOME(LOSS) PER COMMON--
BASIC AND DILUTED $ (.02) $ .07
====== ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING--BASIC 4,834,763 4,915,218
========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING--DILUTED 4,834,763 4,932,031
========= =========
OTHER COMPREHENSIVE INCOME(LOSS),
BEFORE TAX:
Unrealized gains on securities:
Unrealized holding gains(losses)
arising during period $ (33) $ 5
Less reclassification adjustment for
gains included in net income -- --
_________ _________
OTHER COMPREHENSIVE INCOME(LOSS),
BEFORE TAX (33) 5
INCOME TAX BENEFIT (EXPENSE) RELATED TO
ITEMS OF OTHER COMPREHENSIVE INCOME(LOSS) 11 (2)
_________ _________
OTHER COMPREHENSIVE INCOME(LOSS),
NET OF TAX $ (22) $ 3
========= =========
COMPREHENSIVE INCOME(LOSS) $ (119) $ 369
========= =========
See notes to condensed financial statements.
</TABLE>
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<TABLE>
PRINTWARE, INC.
CONDENSED BALANCE SHEETS
DOLLARS IN THOUSANDS EXCEPT SHARE INFORMATION
(UNAUDITED)
ASSETS
April 3, December 31,
1999 1998
____________ ____________
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 194 $ 654
Marketable securities available-for-sale 11,493 11,529
Receivables from nonaffiliates 524 795
Receivables from affiliates 7 --
Lease receiveables - current 460 407
Inventories 2,533 2,162
Deferred income taxes--current 255 243
Prepaid expenses 49 19
_______ _______
Total Current Assets 15,515 15,809
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 214 217
INTANGIBLE ASSETS, net of accumulated
amortization 24 25
LEASE RECEIVABLES--long term 1,119 1,003
DEFERRED INCOME TAXES--long term 1,436 1,461
_______ _______
$18,308 $18,515
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 474 $ 512
Accrued expenses 450 516
Deferred revenues 70 72
_______ _______
Total Current Liabilities 994 1,100
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock, no specified par value;
1,000,000 shares authorized;
none issued and outstanding -- --
Common Stock, no par value, authorized
15,000,000 shares: issued and outstanding
4,842,161 shares at April 3, 1999;
4,834,516 at December 31, 1998,
respectively 22,017 22,001
Accumulated other comprehensive income 114 136
Accumulated deficit (4,817) (4,722)
_______ _______
Total shareholders' equity 17,314 17,415
_______ _______
$18,308 $18,515
======= =======
See notes to condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
PRINTWARE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
QUARTER ENDED APRIL 3, 1999 AND APRIL 4, 1998
DOLLARS IN THOUSANDS
(UNAUDITED)
April 3, April 4,
1999 1998
____________ ____________
<S> <C> <C>
OPERATING ACTIVITIES:
Net income(loss) $ (97) $ 366
Adjustments to reconcile net income(loss)
to net cash provided by operating activities:
Depreciation and amortization 16 16
Unearned compensation on stock options -- 1
Deferred income taxes 13 (9)
Changes in operating assets and liabilities:
Receivables from nonaffiliates 271 (163)
Receivables from affiliates (7) 129
Inventories (371) (252)
Prepaid expenses (30) (24)
Accounts payable (38) 69
Accrued expenses (66) 17
Deferred revenues (2) (35)
______ ______
Net cash (used) provided by
operating activities (311) 115
INVESTING ACTIVITIES:
Purchases of available-for-sale securities -- (80)
Maturities and sales of available-for-sale
securities 14 4
Increase in lease receivables (169) (171)
Purchases of property and equipment (10) (20)
______ ______
Net cash used in
investing activities (165) (267)
FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 16 18
______ ______
NET DECREASE IN CASH
AND CASH EQUIVALENTS (460) (134)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 654 348
______ ______
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 194 $ 214
====== ======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Income taxes $ -- $ 2
====== ======
See notes to condensed financial statements.
</TABLE>
<PAGE>
PRINTWARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
QUARTER ENDED APRIL 3, 1999 AND APRIL 4, 1998
1. INTERIM FINANCIAL INFORMATION
The accompanying condensed balance sheet as of April 3, 1999 and the
condensed statements of operations and comprehensive income for the three
months ended April 3, 1999 April 4, 1998, and the condensed statements
of cash flows for the three months ended April 3, 1999 and April 4, 1998 are
unaudited. In the opinion of management, such unaudited financial statements
include all adjustments, consisting of only normal, recurring accruals,
necessary for a fair presentation thereof. The results of operations for any
interim period are not necessarily indicative of the results for the year.
<TABLE>
<CAPTION>
April 3, December 31,
1999 1998
____________ ____________
<S> <C> <C>
2. RECEIVABLES FROM NONAFFILIATES:
Trade $ 570 $ 837
Employees 2 3
Allowance for doubtful accounts (48) (45)
______ ______
Total receivables from nonaffiliates $ 524 $ 795
====== ======
3. INVENTORIES:
Raw materials $1,423 $1,210
Work-in-process 427 388
Finished goods 683 564
______ ______
Total inventories $2,533 $2,162
====== ======
4. PROPERTY AND EQUIPMENT:
Office equipment $ 493 $ 489
Software 108 108
Machinery and equipment 317 310
Leasehold improvements 126 125
Tooling and spares 338 338
Motor vehicles 24 24
______ ______
Total property and equipment 1,406 1,394
Less: accumulated depreciation and amortization 1,192 1,177
______ ______
Net property and equipment $ 214 $ 217
====== ======
</TABLE>
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PRINTWARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
QUARTER ENDED APRIL 3, 1999 AND APRIL 4, 1998
(Continued)
<TABLE>
<CAPTION>
April 3, December 31,
1999 1998
____________ ____________
<S> <C> <C>
5. INTANGIBLE ASSETS:
License rights $ 560 $ 560
Patents 54 54
______ ______
Total intangible assets 614 614
Less: accumulated amortization 590 589
______ ______
Net intangible assets $ 24 $ 25
====== ======
6. ACCRUED EXPENSES:
Accrued payroll and related $ 88 $ 45
Accrued vacation and benefits 232 174
Accrued professional services 51 221
Accrued warranty reserve 42 45
Accrued real estate taxes 22 --
Accrued other 15 31
______ ______
Total accrued expenses $ 450 $ 516
====== ======
</TABLE>
7. MARKETABLE SECURITIES
The Company classifies its marketable securities as available-for-sale.
At April 3, 1999 and December 31, 1998, securities available-for-sale are
carried at fair value with the net unrealized holding gain or loss included
in shareholders' equity.
8. SHAREHOLDERS' EQUITY
During the three months ended April 3, 1999, the Company issued 7,645
shares of Common Stock in connection with the Employee Stock Purchase Plan at
$2.125 per share.
9. NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued by the Financial Accounting Standards Board in
June 1998. The Standard will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are
not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in
fair value of the hedged assets, liabilities, or firm commitments through
earnings, or recognized in other comprehensive income until the hedged item
is recognized in earnings. The change in a derivative's fair value related
to the ineffective portion of a hedge, if any, will be immediately recognized
in earnings. The Company expects to adopt this Standard as of the beginning
of its fiscal year 2000. The effect of adopting the Standard is currently
being evaluated, but is not expected to have a material effect on the
Company's financial position or results in operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE QUARTER ENDED
APRIL 3, 1999 AND APRIL 4, 1998
Total revenues for the 1999 quarter were $920,000, a decrease of 45%
from those of first quarter 1998 which were $1.68 million. The decrease was
due primarily to a reduction in affiliate supplies sales in the 1999 quarter
compared to 1998.
The Company's gross margin was $336,000 in the first quarter 1999 versus
$750,000 in the comparable quarter in 1998. Gross margin as a percentage of
revenue decreased from 45% in the first quarter 1998 to 37% in first quarter
1999. The decreased percentage margin in 1999 was due primarily to increased
manufacturing variances caused by increased fixed costs and lower volumes.
Research and development expenses increased to $190,000 in the first
quarter 1999 from $179,000 in the first quarter in 1998. The increase was
largely due to salary increases and related fringe costs.
Selling, general and administrative expenses increased to $437,000 in the
first quarter of 1999 from $405,000 in the first quarter of 1998. Selling
expenses increased by approximately $46,000 in the first quarter 1999 due to
increased costs associated with the field sales force established in late
1998. General and administrative expenses were down approximately $12,000 in
the 1999 quarter due primarily to lower accrual of executive incentive
compensation.
Interest, other income and income taxes were $194,000 in the 1999 quarter
compared to $200,000 in the 1998 quarter. This decrease in interest income in
1999 is due primarily to a decrease in cash and investments of over $500,000
from the 1998 quarter compared to the 1999 quarter. This is largely due to
the Company's leasing activity, combined with lower revenues and higher
operating expenses.
The Company's income tax expense primarily consists of minimum taxes due,
offset by the net operation loss carryforwards.
Net loss for the first quarter of 1999 was $97,000, or $(.02) per common
share, down from net income of $366,000 or $.07 per share in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $14.5 million on April 3, 1999 compared to $14.7 at
December 31, 1998. Cash, cash equivalents and investments decreased by
approximately $.5 million at April 3, 1999 compared to December 31, 1998.
The decrease was primarily due to an increase in sales-type leases financed
by the Company, lower revenues and increased operating expenses.
As of April 3, 1999 the Company has no material commitments which would
result in a significant cash outflow other than purchases of inventory in the
normal course of business, and the financing of additional Platesetter leases.
YEAR 2000 ("Y2K")
The Year 2000 problem is due to the past software practice of coding
years using only two digits. This is predicted to cause many computer-related
malfunctions because year "00" will be taken to mean year 1900 rather than
2000. In 1998, the Company began to investigate Y2K compliance in areas of
its Platesetter products, business computer systems (Information Technology or
"IT"), production equipment, vendor readiness, non-IT systems, and contingency
plans.
The Company's Y2K readiness status is: current platesetter products are
Y2K compliant, though some RIPs produced from 1993 through 1996 may be non-
compliant; the central IT software system was certified Y2K compliant by a
third party; equipment used in production does not use dates to control
operations; compliance/impact assessments of the PBX, security, and alarm
non-IT systems is in progress; statements of compliance were received from
the RIP software vendors. To complete readiness and remediation by mid-1999,
the Company plans to: assess and remedy compliance with personal productivity
PCs and their applications; complete assessment of the non-IT systems;
complete assessment of ancillary software packages sold by the Company; send
compliance questionnaires to other significant vendors and assess results.
The Company has spent approximately $25,000 to date on its Y2K related
activities, and estimates $50,000 to be adequate for its related 1999
activities. The Company does not anticipate purchasing Y2K liability
insurance. Because of the current state of Y2K readiness and the date
insensitivity of its products, the Company believes the most likely
worst-case scenario to be short term delays in receiving production
inventory.
The Company anticipates developing a contingency plan by mid-1999, based
on its knowledge at that time. The Company's most-likely contingency plan
is projected to primarily be the ordering of extra production inventory to be
received near year-end thereby averting key vendor or transport interruptions
going into 2000.
Although the Company does not at this time expect a significant impact on
its financial position, results of operations, and cash flows, our internal
Y2K review has not been completed and there can be no assurance that the
systems of other companies or the systems of the Company will not have a
corresponding adverse effect on the Company.
<PAGE>
PART II--OTHER INFORMATION
Item #6 Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 11. Statement re computation of per share earnings
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
No reports have been filed on Form 8-K during this
quarter.
<PAGE>
PRINTWARE, INC.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934,
the registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRINTWARE, INC.
Registrant
Date: April 29, 1999 /s/ THOMAS W. PETSCHAUER
________________________
Thomas W. Petschauer
EXECUTIVE VICE PRESIDENT
& CHIEF FINANCIAL OFFICER
(Principal Financial Officer)
Date: April 29, 1999 /s/ DANIEL A. BAKER
________________________
Daniel A. Baker, Ph.D.,
PRESIDENT
& CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
<PAGE>
<TABLE>
PRINTWARE, INC.
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS(LOSS)
<CAPTION>
Quarter ended
April 3, April 4,
1999 1998
__________ __________
<S> <C> <C>
BASIC EPS:
Weighted average number of
common shares outstanding 4,834,763 4,915,218
__________ __________
Total shares 4,834,763 4,915,218
========== ==========
Net income(loss) (000's) $ (97) $ 366
========== ==========
Earnings(loss) per share $ (.02) $ .07
========== ==========
DILUTED:
Weighted average number of
common shares outstanding 4,834,763 4,915,218
Common share equivalents
from assumed exercise of
options and warrants -- 16,813
__________ __________
Total shares 4,834,763 4,932,031
========== ==========
Net income(loss) (000's) $ (97) $ 366
========== ==========
Earnings(loss) per share $ (.02) $ .07
========== ==========
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Apr-03-1999
<CASH> 194
<SECURITIES> 11493
<RECEIVABLES> 1039
<ALLOWANCES> (48)
<INVENTORY> 2533
<CURRENT-ASSETS> 15515
<PP&E> 1406
<DEPRECIATION> 1192
<TOTAL-ASSETS> 18308
<CURRENT-LIABILITIES> 994
<BONDS> 0
<COMMON> 22017
0
0
<OTHER-SE> (4703)
<TOTAL-LIABILITY-AND-EQUITY> 18308
<SALES> 920
<TOTAL-REVENUES> 920
<CGS> 584
<TOTAL-COSTS> 584
<OTHER-EXPENSES> 627
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (194)
<INCOME-(LOSS)-PRETAX> (97)
<INCOME-TAX> 0
<INCOME-(LOSS)-CONTINUING> (97)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME-(LOSS)> (97)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
